Understanding Risk in Complex Environment

4 Credits.

Political risk affects almost every major decision that governments, corporations, nonprofit organizations, and even individuals make, sometimes turning what appears to be a good decision into a bad one, with severe implications. However, compared to economic or financial risk, political risk is hard to measure and mitigate, as it must take into account the often opaque choices made by politicians, bureaucracies, identity and interest groups, non-state actors, and anyone else capable of affecting politics (broadly defined to include institutions). These, in turn, may depend on ideas, interests, historical circumstances, and biases. Moreover, the “unknown unknowns” can be as important as the “known knowns” and “known unknowns.” Politics affects risk on many levels (e.g., international, national, regional, and local), and is the result of the interaction of many different elements. It is increasingly important because of how globalization and technological change has transformed the environment in which all organizations must operate.Markets are more interconnected, organizations are more international, and distant events and actors are more impactful on conditions at home. Politics matters more to how economies function in the developed world than ever before, and plays a more significant role in how most developing economies work than economic fundamentals. The class focuses more on the risks that face countries than on how particular risks might impact corporations or NGOs, though the latter is also examined. The two types of risks are related, but are not identical (e.g., regulatory changes may be good for a country, but bad for a company or NGO).